New Canada/US customs tariffs: Is it possible to renegotiate the terms of commercial agreements in Québec?
On February 1, 2025, United States President, Donald Trump, announced the imposition of a 25 percent customs tariff on imports from Canada and a 10 percent tariff on energy products. In response, Canada announced countermeasures on imports from the United States. On March 4, 2025, as no agreement to the contrary had been reached between these countries, these tariffs and countermeasures came into force.
The resulting cost increases will impact Canadian businesses, potentially rendering some commercial agreements unprofitable or too costly to honor. Given the new economic landscape and anticipated losses, many may seek to terminate or force their contractor to renegotiate their contractual commitments. However, in Quebec, renegotiation of a contract (including readjusting the prices) is not an absolute right in the absence of a clear provision in the contract obligating the parties to do so.
The doctrine of unforeseeability
Some jurisdictions recognize the “doctrine of unforeseeability” or “hardship”, which forces parties to renegotiate a contract when an unforeseen and uncontrollable event makes the agreed obligations excessively burdensome for one party, creating a significant economic imbalance. Such an imbalance can occur in long-term supply contracts for energy or raw materials, where such events cause substantial market fluctuations, drastically increasing supply costs while the contract price remains fixed. Compliance with the contract could become a financial peril for the supplier, potentially leading to bankruptcy and unjust enrichment of the client. The customs tariffs imposed by the Trump administration and Canada’s countermeasures could lead to such situations, particularly within supply chains. According to the doctrine of unforeseeability, parties would be required to renegotiate the contract price.
The apparent economic trade war between Canada and the United States is likely an unforeseen and uncontrollable event that disrupts the balance of certain contracts, jeopardizing the financial health of the disadvantaged party. Unfortunately, the doctrine of unforeseeability is not recognized in Quebec law, as the legislator explicitly chose not to include it during the reform of the Civil Code of Quebec, as confirmed by the Supreme Court of Canada in Churchill Falls (Labrador) Corp. v. Hydro-Québec, 2018 SCC 46, par. 93 and following. Thus, contracts governed by Quebec law that do not include price adjustment, renegotiation, or hardship provisions lack the flexibility to adjust the parties’ obligations when compliance becomes a financial peril for one party. If the advantaged party refuses to renegotiate, the other party remains strictly bound by terms of their agreement.
Refusing to forego the benefits of the contract, despite the unforeseen change in circumstances, will not generally constitute a breach of good faith, or unreasonable behaviour. Quebec civil law places freedom of contract at the heart of contract law, so even a contractual obligation to negotiate in good faith cannot be used to demand particular results at the end of negotiations, as the Court of Appeal reminded us in a recent decision, 2177 23rd Avenue Holdings c. Pival International inc. 2025 QCCA 19 par. 63.
Although the doctrine of unforeseeability does not apply in Quebec law, the Supreme Court has opened the door to recognizing an implicit obligation to renegotiate, exceptionally for “relational” contracts, such as franchise or joint-venture agreements, when necessary, to maintain the contract’s coherence, address its gaps, and align with its overall economy (see Churchill Falls (Labrador) Corp. v. Hydro-Québec, 2018 SCC 46, paras. 72 and following).
Nevertheless, the risk of insolvency proceedings for the disadvantaged contracting party should be an incentive for the other contracting party to accept a renegotiation of the terms of the contract for them to be fairer and in order to preserve the possibility of mutual gains for which the contract was initially concluded. The bankruptcy of the contracting party or a proposal could deprive the other party of any gain under the contract, cause losses, and leave them without recourse. Therefore, it may be advantageous for the advantaged contracting party to consider amicable renegotiation, during which the parties could also include mechanisms to better adjust to future customs tariff or market fluctuations.
Given the current political and economic climate between the United States and Canada, it is more important than ever for businesses to review their contract terms and conditions to fully understand their rights and obligations. Businesses should familiarize themselves with various price adjustment mechanisms that can be integrated into contracts and the allocation of risk between contracting parties, particularly regarding tariff applications, to determine who will bear the upcoming tariff increases. If the parties have chosen to include a hardship clause in their agreements, it is essential that its validity be analyzed in detail on both sides, particularly as it could be the salvation of the disadvantaged party or a source of conflict in the future.
Our experienced lawyers, Mélanie Martel and Marie-Philippe Lavoie, and their team, are available to advise you on your rights and obligations under commercial agreements, assist you in contract negotiations, assess strategies to defuse potential disputes arising from economic upheavals, and represent you before any tribunal in this regard.
